Saturday, July 11, 2009

New World Currency?

July 10 (Bloomberg) -- Russian President Dmitry Medvedev illustrated his call for a supranational currency to replace the dollar by pulling from his pocket a sample coin (pictured above) of a “united future world currency.” “Here it is,” Medvedev told reporters today in L’Aquila, Italy, after a summit of the Group of Eight nations. “You can see it and touch it.”

The coin, which bears the words “unity in diversity,” was minted in Belgium and presented to the heads of G-8 delegations, Medvedev said. The question of a supranational currency “concerns everyone now, even the mints,” Medvedev said. The test coin “means they’re getting ready. I think it’s a good sign that we understand how interdependent we are.”

This is bad news for the USA. If we have to pay off debts run up in the Reagan-Bush-Bush years in something other than dollars, we are sunk. Right now, we can pay off foreign debts by printing dollars. Our debts are in dollars. If our debts are in another currency, then when our dollar sinks in value (as it will, we have been running huge federal and trade debts for generations) we will have to work that much harder to pay off the debt. It will be too onerous. Really, we have two choices if this international currency takes hold: Renege on our debt; or endure a serious and nearly permanent decrease in living standards.Hopefully, the dollar will not be replaced. Still, we should move the radically reduce our national debt outstanding. During the 1950s, when a very conservative (Everett Dirksen et al) Republican Party gained control of the the Congress and White House, they kept the top federal tax rate at 90 percent. We paid down our debt steadily. When the Democrats regained control of the Congress, it was Southern Democrats, again very conservative. The top tax rate held, and the debt kept getting paid down. In a sense, all of us owe thanks the the taxpayers of the 1950s, who tolerated higher tax rates for the benefit of future generations.Today is not the 1950s, but we have again gone back to that level of indebtedness. Today is not the 1950s. Nobody wants to cut spending of any kind, and nobody wants to pay more in taxes. (Oh sure, everybody wants to cut spending for somebody else, or eliminate someone else's tax breaks. As Sen Russell Long used to say, "Don't tax you, don't tax me; tax that man behind that tree." We are becoming the Banana States of America as a result, and global distrust of our currency is growing. Sadly, I do not see any backbone, in either the R- or D-Party to retreat from our path to Bananadom.You see Robert Miller's internet avatar, that rugged looking man in a beret (except for the rouge)?Maybe that is the US Prezzy 2024. A banana-republic in full.

Benny who THINKS he's a free marketeer says: "If we have to pay off debts run up in the Reagan-Bush-Bush years in something other than dollars, we are sunk"...

So are you saying the massive transfers of wealth (via the federal government's apparent need to pander to the parasite) that happened under FDR (SS) and LBJ (great society programs) could've been paid off?

No 1 and Anon:Free marketeers especially do not espouse building up huge federal debts--that can only be repaid by our children.Look, I want the lowest tax rate too. I advocate eliminating the Department of Agriculture, HUD, Dep't of Education, and the Department of Labor, and radically curtailing military spending.I would eliminate the personal and corporate income tax, and replace it with a national sales tax of 15 percent, and maybe a gasoline tax.I advocate a balanced federal budget, and a stimulate money policy (within reason).But, hey, good luck with that, as they say.We have a an utterly feckless confederacy of poltroons named the Republican Party. They love to borrow money. The Democrats love to spend money (although after the Bush years, it is hard to tell who likes to spend the most). Seriously, the federal government, including the military, has become incredibly and expensively ossified. It will take a meataxe to fix this.I vote for third parties. Good luck supporting the D- or R-Party to the rest of you. You are headed into the Banana States of America.BTW, there are countries, such as Sweden, Norway, Thailand, Japan, Canada or probably a few others, that seem to have reasoned, somewhat responsible leadership. You may wish to migrate to one of those countries. I have my sights set on Thailand.Other, get ready for Generalisimo Miller in 2024.

If it is gold backed, and treaties protect it's use as legal tender, then it would be hard to stop. I do not see the USA signing such treaty soon, but if such a gold backed currency was started and was by treaty a legal tender in the EU, Russia, Japan, and China, it would be impossible to stop it.

Isn't tne Russian GNP essentially the same size as the Netherlands? I rememember Geroge Will saying that about 12 years ago. So why should we listen to people who historically don't know how to build a strong economy? Built one Dmitry and they will come.

No. 1It is really bas economics to tax productive behavior -- that is. working and investing. A tax on consumption is better, and I contend easier to administer. Imagine no tax code!Yes, there would be some "unfairness" in my system. But surely less than in the incredibly convoluted and easily corruptible system we have now.My favorite slogan: Keep It Simple Stupid (KISS). BTW. services would be taxed too, such as lawyer fees. Maybe we tax lawyer fees triple.

Yeah, tax lawyers' services triple so that people who are in a bad situation and need an attorney get charged even more!

That would just make it so some people couldn't as easily afford the attorney's services as the lawyer would just pass most of the tax through as higher costs (some of the higher cost would come from the attorneys, but as legal services have inelastic demand, most would go to the consumer). I think attorneys cost enough already.

While I like some of the things you say, Benny, I do wish you would read a basic economics guide or textbook so you wouldn't throw in ridiculous comments that discredits your good comments.

The Europeans have been trying very hard for many years to be the center of the economic world. Unfortunately, the E.U. economy would collapse if it attempted to be the main engine of global growth. So, it'll have to keep adding countries to keep up with the U.S.

However, it's appropriate today to change the dollar's motto from "In God We Trust" to "In Government We Trust."

Although I am usually wrong about history, didn't we have already an international currency? Until 37th President failed to pay his monthly bill to France, failed to send gold from Fort Knox according to Bretton Woods Agreements did we have, do we still have as international currency gold bullion? If that attempt to replace the pre-previous international currency with gold has failed forever thus why anyone expects a Baby Bretton Woods to replace with silver coin the stolen steel coins which now come from the barrel of a howitzer?

The purpose/idea behind the Gold Standard is that it makes inflating the currency difficult. Short of finding a major gold strike, you don't add more currency to the base.

The real problem with this is that the asset base which is supposed to be represented by the gold is no longer fixed or even slow-changing, while the gold supply IS exactly that.

So gold is a lousy basis for a dynamic economy.

Ideally, the money in circulation represents the amount of total asset valuation of a nation at any instant in time (or at least the parts you want to be able to "move", as in sell, trade, or buy). When the amount of money increases faster than the assets, inflation (i.e., devaluation) occurs. When the money decreases with relation to the assets, deflation (i.e., infused valuation) occurs -- the unit money becomes more valuable than it was before).

Neither state is desirable, and there is a need to accurately assess the value of the total national assets so as to appropriately print the correct amount of "new money" and inject it into the money supply.

But our current government doesn't grasp this (and is but the egregiously worst in a long line of offenders, mind you, on both sides of the aisle and both houses of Congress). As a result, we're spending ourselves into chaos.

"Isn't tne Russian GNP essentially the same size as the Netherlands? I rememember Geroge Will saying that about 12 years ago. So why should we listen to people who historically don't know how to build a strong economy? Built one Dmitry and they will come."

First of: GNP should not be used, try GDP. Secondly: The Dutch GDP is very high for a country it's size. In fact we are in the 15th position worldwide.

So please do not use the Netherlands as an example of a bad economy, cause that's just not true!